How the CARES Act shields homeowners from foreclosure and eviction
The CARES Act, passed in the early stages of the COVID-19 pandemic, was a massive aid package that was meant to provide financial relief to individuals and businesses struggling during the pandemic and mandatory government shut-downs.
With much of the country forced to shut down during the outbreak of the pandemic, people were left scrambling to figure out how they were literally going to put food on the table.
The CARES Act had many parts, including direct payments that most every American received. It also enhanced unemployment benefits and provided loans to small businesses to maintain their payroll — which turned into grants if certain requirements were met.
Another main aspect of the act dealt with mortgages and foreclosures. Below, we’ll dive deeper into the details of how the CARES act shields homeowners from foreclosure and eviction.
Coronavirus and the CARES Act
When the COVID-19 pandemic broke out in the U.S. in March 2020, virtually everyone across the country was forced to lock down in their homes. Schools and businesses were shuttered, except for a few essential services such as grocery stores and medical facilities.
While some people were able to continue working from home, many others were laid off overnight. Some who weren’t laid off didn’t receive payment from their companies, because those businesses were no longer generating sales.
With all of this happening swiftly and at once, Congress stepped in to pass the CARES Act — with trillions of dollars in financial aid going to a number of different areas.
So many people were struggling paying their bills that the federal government didn’t want to see millions of homes go into foreclosure overnight. That’s why one of the areas that was covered under the CARES Act was mortgages and a moratorium on foreclosures that were backed by the federal government. The CARES Act did not apply to privately held mortgages.
Foreclosure and the Coronavirus Pandemic
There were three main provisions in the CARES Act that dealt with mortgages and foreclosures.
The most commonly-used aspect was a forbearance period, which allowed homeowners to pause the monthly payments on their mortgage for as much as one year. During the forbearance period, lenders were not allowed to charge late fees for missed payments, and also couldn’t report homeowners to credit agencies.
Mortgage forbearance didn’t forgive monthly payments, but rather allowed homeowners to skip them for a temporary period of time so they could use the money on other everyday essentials.
There were also provisions for foreclosures, sheriff sales and evictions.
Foreclosure Provisions of the CARES Act
To receive a forbearance on your mortgage, you had to request it directly from your mortgage servicer. All mortgages that were backed by the federal government in some capacity were eligible for this forbearance. That includes loans obtained through the VA, FHA, USDA, Freddie Mac and Fannie Mae.
The CARES Act stated that you only had to make this request and verbally declare that you were impacted by the Covid-19 Pandemic, and didn’t have to provide any documentation regarding your financial hardship.
While lenders weren’t able to charge late fees for any missed payments for loans that were in a forbearance period, they were allowed to choose how those missed payments would be handled once the period ended.
They could charge a lump sum payment — meaning that all missed payments would come due in one large lump sum once the forbearance ended. They could prorate the payments, evenly dividing the amount of all the missed payments by the number of missed payments, and then adding that amount on top of the regular monthly mortgage.
A third option would be to extend your loan so your missed payments were just tacked on at the end. The lender wasn’t required to allow borrowers to choose the repayment method, though they could certainly work together on it.
Sheriff sales and foreclosures judgment under the CARES Act
During the pandemic, homeowners who were being foreclosed on or were facing foreclosure got some major relief. Any lender working with a mortgage backed by the federal government wasn’t allowed to move for a judgment of foreclosure, initiate any foreclosure process (non-judicial or judicial), seek a sheriff sale, or execute an eviction related to a foreclosure or foreclosure sale.
The moratorium was put in place for three months initially, but then was extended multiple times. The only exceptions to the rule was if a property was abandoned or vacant.
Eviction restrictions
Homeowners facing foreclosure were not allowed to be evicted from their homes during the moratoriums. This basically put a pause on all foreclosure proceedings for a temporary period of time.
Foreclosure and your mortgage payment
The foreclosure process differs from state to state, based on the local laws that are in place. Typically speaking, mortgage companies are not allowed to initiate foreclosure until a certain number of days after the first missed mortgage payment.
From that point, there are many steps that must be followed.
Foreclosure process: How does foreclosure work?
In the state of Michigan, foreclosure can either be judicial or by advertisement. The timeline for each is the same, but there are some slight differences for how the process plays out.
Foreclosure timeline
In Michigan, the payment delinquency timeline actually begins on the second day after a missed mortgage payment. All payments are due on the first of the month, and will then be considered delinquent on the second.
The mortgage company then has a process that they must follow to pursue foreclosure, which generally requires at a minimum 90 to 120 days of missed payments.
Missed mortgage payments
Once a mortgage payment is missed, late charges can be assessed. The lender or servicer of the loan is required to make live contact with the homeowner to inform them about options for loss mitigation.
On Day 45 after the missed payment, the lender or servicer has to assign a single point of contact to the homeowner and also provide a written notification of options for loss mitigation and the fact that they are delinquent.
The lender and borrower can work on a loan workout, modification of the loan or other option for loss mitigation. You can also make a partial payment if the lender allows it.
Foreclosure counsel and notice of default
At Day 121 after the missed payment, the foreclosure process can begin, if all other attempts at resolving the outstanding debt are unsuccessful.
At this point, an official notice of foreclosure will be recorded at the local courthouse. A date for a sheriff sale will be scheduled and published in a county newspaper for four consecutive weeks. That notice will also be posted at the property within two weeks of the first publication.
At this point, it is very important for homeowners facing foreclosure to enlist the services of an experienced foreclosure law firm to determine if the foreclosure process was followed correctly and if all options under the CARES Act were provided.
Other Foreclosure Provisions
In Michigan, the redemption period begins at the date of the sheriff sale through six months after it, though it could also last for 12 months in certain circumstances. The homeowner is allowed to live in the property during the redemption period and is not required to make payments as long as they maintain the property, utilities and insurance.
The borrower can redeem the property by paying the amount bid at the sheriff sale plus all interest and fees.
Judicial Foreclosures Vs. Nonjudicial Foreclosures
A judicial foreclosure requires the lender to take the borrower to court to get an official judgment. A non-judicial foreclosure includes a sheriff’s sale that must be advertised in a local newspaper with additional required notices such as placing a notice of foreclosure sale on the home itself.
Judicial Foreclosure States
There are 21 states plus the District of Columbia that predominantly use judicial foreclosure. They include Wisconsin, Vermont, South Carolina, Pennsylvania, Oklahoma, Ohio, North Dakota, New York, New Mexico, New Jersey, Maine, Louisiana, Kentucky, Kansas, Iowa, Indiana, Illinois, Hawaii, Florida, Delaware and Connecticut.
Nonjudicial Foreclosure States
The other 29 states predominantly use the non-judicial foreclosure process.
FAQS
Should I Have Filed Bankruptcy During the Pandemic?
The CARES Act and other economic stimulus packages passed during the pandemic provided some relief to people experiencing financial hardship. That being said, some people still needed to file for bankruptcy during the pandemic.
Do I Owe Money if the House Sells for Less than I Owe?
If your home is sold at sheriff’s sale for less than you owe on the loan, the lender can still go after you for the unpaid amount, which is referred to as the deficiency.
Can I Keep the Profits from a Foreclosure Sale?
In most cases, the borrower can keep any profits from a foreclosure sale. There may be other claimants to that profit, though.
How Will Foreclosure Hurt My Credit Score?
A foreclosure will typically lower your credit score by 100 points or more, and will typically last for about seven years. Over that time, your credit score will improve.
How Can I Stop the Foreclosure Process?
In Michigan, you can stop the foreclosure process by working directly with your lender to make up for missed payments, or by redeeming the property following a sheriff’s sale.
